The Philippines is urged to open its logistics sector to more foreign competition and remove rules granting preferential treatment only to certain firms to reduce the high cost of logistics and realize the crucial economic role in the sector, which has an estimated $11 billion market size.
This was highlighted by the Organization for Economic Co-operation and Development (OECD) and the Philippine Competition Commission (PCC) in the two reports: “Competition Assessment Reviews: Logistics Sector in the Philippines” and “Competitive Neutrality Reviews: Small-Package Delivery Services in the Philippines”.
The reports studied 96 relevant laws and regulations and presented 99 specific pro-competition recommendations to support efforts in boosting the country’s logistics sector and leveling the playing field between private and state-owned firms.
The reports flagged competition issues in the logistics sector as rules that may limit market entry; exemptions from competition law, and; rules granting preferential treatment only to certain companies resulting in uneven competition in the market.
On freight transportation and logistics, the reports recommended that the government should no longer classified this subsector as public utility. This means removal of the 40 percent foreign equity limitation on these businesses.
“Freight transportation and logistics should be removed from those sectors included in the definition of ‘public services’ in the Public Service Act and the requirement to obtain a certificate of public convenience (CPC) should be removed. If freight transport and logistics were to continue to be classified as public services, remove the economic-needs test from the requirements to obtain a CPC,” the reports stated.
The review recognized the logistics sector’s crucial role in the Philippine economic development with a market size of $11 billion, which accounts for approximately 4 percent of the country’s gross domestic product (GDP).
Despite its cruel role in the country’s economy, OECD said that the cost of logistics to sales remains high in the Philippines, approximately 27 percent higher compared to other ASEAN countries. The study cited that the country ranks 60 in the World Bank’s Logistics PerformanceIndex (LPI) in 2018, with timeliness and customs considered as the two most challenging areas and low scores for infrastructure and logistics competence. The Build! Build! Build! (BBB) program, however, is expected to improve the country’s infrastructure and logistics performance.
On road freight transport, the reports urged for clear guidelines on application requirements for road freight transport licenses. All licenses and permits required for trucks for hire available through a single application to a single agency. Port-related activity permits should be removed, it said.
In addition, the government should introduce roadworthiness standards for trucks with a transition period for current market operators, rather than implementing the ban on vehicles, which are more than 15 years old.
A national authority, such as the Department of Transportation (DOTr) should supervise fees charged by local government units (LGU) and publish an annual report detailing all authorized fees.Alternatively, national legislation that explicitly prohibits LGUs from raising additional pass-through fees should be introduced.
For maritime freight transport, the reports recommended for structural separation between the regulatory, operational and commercial functions of the Philippines Port Authority (PPA) and of regional port authorities such as the Cebu Ports Authority (CPA), should be ensured.
Maritime authorities should work together to remove any overlapping requirements, for example, safety-certificate requirements.
The framework for the regulation of port charges by the port authorities, notably PPA, should be revised in order to separate its revenue gathering functions from its regulatory activities.
Maritime Industry Authority’s (MARINA) power to intervene in domestic shipping rates should be removed.
In addition, the OECD reports said that authorities should make it easier for pilots to obtain multiple licenses and so work across pilotage districts. Foreign equity limits should be relaxed for the provision of port services and the awarding of contracts.
On freight forwarding, the reports said that responsibilities should be concentrated so that a single ministry regulates all freight forwarders regardless of their mode of transport.
Shipping lines should be explicitly allowed to establish freight-forwarding businesses.
The second study focused on small-package delivery services to demonstrate how competitive neutrality is applied in the logistics sector, in this case between private firms and the state-owned Philippine Postal Corporation (PHLPost).
The report recommended that foreign participation in the market for express-delivery services should be allowed. It also called for the removal of the minimum prices for postal services including small packages and letters.
Government must also ensure that PHLPOST keeps separate accounts for the provision of franking privilege services as well as limit the cases where PHLPOST’s ownership entity needs to obtain the Philippine president’s ex ante approval for significant transactions, such as high-risk transactions or transactions exceeding a certain value.
In addition, the report suggested to subject PHLPOST’s financial statements to independent external audit.
Amendment to the Postal Service Act was also raised to clarify that PHLPOST does not exercise any regulatory powers on the industry.
“The PCC supports the pro-competition initiatives of government to modernize and simplify its processes and eliminate red tape. A competitive logistics industry is vital to recovery and key to increasing consumer welfare in the new normal, especially with the rise of digital commerce in bridging supply and demand in our markets,” said PCC Chairperson Arsenio M. Balisacan.
“Ultimately, the policy recommendations in the reviews are about investment, jobs and growth. There is a need to reduce unnecessary legal and regulatory restrictions to competition, thus bringing prices down, and improving the quality of goods and services and increasing innovation,” said Antonio Gomes, OECD Deputy Director for Financial and Enterprise Affairs.
The reports are part of a region-wide project to foster competition under the ASEAN Competition Action Plan 2016-2025. The assessments were conducted in partnership with ASEAN and the UK Government.
“The UK government fully supports the goals and initiatives under the ASEAN Competition Action Plan 2016-2025 to help member countries build a fair and competitive environment where innovation, entrepreneurship, investments, and trade and industry could thrive,” said Daniel Pruce, UK Ambassador to the Philippines.